The residents of the controversial tent city in Martin Place prepared to leave the site on Friday morning, following months of negotiations between the state government and the City of Sydney council.

After more than six months camped outside the Reserve Bank building at the eastern end of Martin Place, the homeless community started moving on about 9am, after a change in legislation that would have resulted in them being forced out.

The man dubbed the "Mayor of Martin Place", Lanz Priestly, said some camp dwellers were moving to "friend's places" or "friend's backyards".

"There are some of the people who are from here who don't have anywhere to go," he said.

Lanz Priestley in Martin Place in January. Photo: Daniel Munoz

Sydney lord mayor Clover Moore had tried to reach a deal with Mr Priestly, but the arrangement collapsed on Monday, leading to the legislative change.

NSW Premier Gladys Berejiklian announced on Tuesday that the state government would change the law to give police the power to move people on if it was determined that they were engaged in "unauthorised activity that compromises public safety".

The legislation, which was passed on Thursday, affects only Crown land within the City of Sydney, and does not extend to other councils.

"I don't know what's going to happen next," he said.

"A lot of people are traumatised by what's going on."

Tony, who said he'd been homeless for 12 months, described the Martin Place camp as a "safe space" which has been part of his "healing process".